tax professional on the phone
tax professional on the phone

Breaking bad news: How to tell clients it’s time to close their businesses

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No one wants to be told it’s time to close their business, but at some point, it’s likely you will have a client who needs to be given this disappointing news.

Given the realities of the COVID-19 pandemic, you are undoubtably faced with clients who have business closures. The lack of control and uncertainty makes advising clients a daunting task. As the tax and accounting professional, all you can do is peer into the void, and quantify the benefits and burdens of remaining open versus closing. Without knowing when this pandemic will be over or the changes that will become a permanent part of the business environment, it is imperative that your clients fully understand not only what options they have, but the high degree of uncertainty underlying all alternatives.

Clients often seek objective advise from us; they need to understand that our advice is more subjective than objective. As a result, more time than normal needs to be spent setting assumptions, analyzing uncertainties, and identifying re-evaluation points. Your clients need to appreciate the fragility of your advice and embrace the fact that the assumptions used to develop options may likely prove in time to be inaccurate. At some point, this crisis will be in the rear-view mirror, but until then, its effects must be contemplated and your clients must remain agile to flex with changing realities.

How you can help

Most likely, from the first day your client’s business opened, it was a source of great pride and joy. It fed and clothed their family. It was their child, born of an idea, nurtured into reality and shepherded into maturity. It was part of their identity – the focus of their life.

Now, your client is in your office to discuss their business woes, and you realize it may be time for them to close. However, don’t be reactionary; take time to assess the situation by focusing on the following:

#1: What are the business or personal factors that make you think your client should consider closing their business?

  • Is the business losing money and not be able to recover?
  • Are debts out of control?
  • COVID-19 aside, is the owner tired of the daily grind?
  • Are there events in the owner’s personal life pushing the business closure?

#2: What alternatives are available to the owner?

  • Is there any chance the business could be turned around?
  • Does the owner have the will to stay in business, if that is a viable option?
  • Could the business be sold?
  • Are changes required to make the business a viable candidate for sale, and is there time to implement those changes?
  • Does the business have a succession plan?

#3: What are the consequences of closing the business?

  • Does the owner have adequate resources to live or find another means of support?
  • Will the employees have an opportunity to find other employment, or can they be provided with severance benefits?
  • Are there debts and residual liabilities requiring mitigation prior to business closure?
  • Does the owner have personal liability for any business debts?
  • Does the business have assets with liquidation value? Is there time to sell any assets, and are they encumbered by liens?
  • Is it time to call the bankruptcy attorney?

At the end of the day, if the only viable option is to cease operations and close the doors, then it is up to you to break the bad news. Breaking bad news is not an easy thing to do, but here are some suggestions:

  • Prepare yourself in advance. Familiarize yourself with your client’s situation. Using social distancing best practices, discuss in person, in a private, comfortable location. If you or your client are uncomfortable with a face to face meeting using appropriate precautions, the use of a video conferencing app could be employed.It is preferable to meet face to face because you want to experience all of your client’s reactions. Sometimes facial expressions and body movements can convey more than mere words. Prepare yourself emotionally for your client’s reactions.
  • Communicate frankly and with compassion. Avoid euphemisms and technical jargon. Understand that silence is an acceptable response. Give your client time to process the message. Avoid the tendency to avoid moments of silence by talking. Encourage questions, offer comfort and reasonable hope.
  • Summarize important facts, and provide a written summary to clarify the points discussed and agreed action. After you break the bad news, you can assume that your client will not hear everything that was said.
  • Remain positive. You can be empathetic without being emotional. Avoid assessing blame or being critical. Now is not the time whip up emotions.
  • Provide an action plan. Your client needs to know you are with them and they are not alone. They have you as their guide, their quarterback, and their advisor.

As the objective professional, it’s easy to be results driven, and simply lay out facts and solutions. When delivering bad news, it’s important to be client centered. Be sensitive to how your client reacts to what you are telling them. You need to identify issues, offer a concrete action plan and provide reasonable hope, all with confidence, compassion and empathy. Remember: how you talk to your client is as important as what you say. How you present bad news has a lot to do with the outcome.

Fredric D. Leffler, CPA, MBA

Fredric Leffler has been providing tax advice and business planning to clients for more than three decades. Over the years, he has owned a number of businesses, including service and manufacturing companies. His experience with these businesses provides him with a keen insight into the issues that affect small and medium businesses. You can reach him at More from Fredric D. Leffler, CPA, MBA

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